Strategic Roth IRA Conversions

Strategic Roth IRA Conversion

How would you like to switch your retirement savings to an account that grows tax-free?  You can make tax-free withdrawals from the account. And you can leave a tax-free inheritance to your heirs.  Right now, there are no restrictions on converting to this tax-free oasis. So, if you're considering a Roth IRA conversion you are going to want to think taxes.

Like most people, your taxable income is fixed and tied directly to your paychecks. However, the day you retire those paychecks end.  But,  the degree of control you may have over your tax may improve.  Now you can  manage the amount of income you will have to report to Uncle Sam.  You'll have control other things that determine your taxable income. It’s pretty much up to you as to how much money you withdraw each year from your retirement accounts.

How to Decide?

You decide if you want to start your Social Security benefits as early as age 62, or delay those benefits, and any associated taxes they might trigger. It’s entirely up to you as to when you might sell any stocks in your brokerage account, taxed at lower capital gains tax rate, if you want more income.  Best of all, if you have some money in a Roth IRA, by now you may have fulfilled the requirements allowing you to take withdrawals … entirely free from income taxes. Any income that is tax-free will surely bring a tear to Uncle Sam’s eye.

Don’t have a Roth IRA?  It may not be too late. In fact, those first five or so years after you stop working may be a great opportunity to convert some of the money in your taxable retirement accounts to a tax-free Roth. One very important thing to consider is that you’ll have to pay tax on the money you convert. There’s no free lunch here. Every tax dollar you are forced to pay now because of any conversion will certainly be painful, but just remember that paying this tax today could save you or your heirs many more tax dollars in the future.

However, the day you retire and those paychecks end, the degree of control you may have over your taxes might improve dramatically. It’s a great time for some advance planning because now you can better manage the amount of income you will have to report to Uncle Sam each time April 15th rolls around. You have control other many things that determine your taxable income. It’s pretty much up to you as to how much money you withdraw each year from your retirement accounts. You decide if you want to start your Social Security benefits as early as age 62, or delay those benefits, and any associated taxes they might trigger. It’s entirely up to you as to when you might sell any stocks in your brokerage account, taxed at lower capital gains tax rate, if you want more income.  Best of all, if you have some money in a Roth IRA, by now you may have fulfilled the requirements allowing you to take withdrawals … entirely free from income taxes. Any income that is tax-free will surely bring a tear to Uncle Sam’s eye.

 

Don’t have a Roth IRA?  It may not be too late. In fact, those first five or so years after you stop working may be a great opportunity to convert some of the money in your taxable retirement accounts to a tax-free Roth.